Summer of mayhem will see travel insurance costs rise

Recent flight cancellations and delays will impact on the profitability of travel insurance and see policy costs rise, a major survey has revealed.

DBRS Morningstar says the rapid increase in travel demand has hit airlines with an unprecedented number of cancelled and delayed flights due to extreme staffing shortages, increased operational requirements, and fleet reductions during the Covid pandemic.

This material increase in flight cancellations and delays, as well as baggage losses, will likely make travel insurance unprofitable in 2022, compounding the problems experienced by the travel insurance business since the beginning of the pandemic.

But despite a substantial increase in travel insurance losses, the overall impact on the financial strength of insurance companies should remain manageable given their high degree of diversification, the report says.

“With many airlines and airports around the world facing extremely high levels of flight cancellations and delays in recent months, we expect that the travel insurance industry will experience combined ratios over 100% due to the increase in insurance losses, making this business line unprofitable for most insurance companies in 2022,” said Marcos Alvarez, DBRS Morningstar senior vice president and global head of insurance.

“This will compound the problems experienced by the travel insurance business since the beginning of the pandemic, as insurance companies were initially hit by a jump in claims and then by the collapse of global travel, which considerably decreased the demand for this product.”

The summer holiday season in the Northern Hemisphere has brought additional challenges for airlines and airports around the world, with thousands of cancelled and delayed flights due to extreme staffing shortages, labour actions, increased operational requirements, and fleet reductions during the pandemic.

These factors have driven airlines around the world to cancel an unprecedented number of flights in recent months.

Air Canada (kings of comedy capers) recently announced that they would cancel more than 9,500 flights over July and August, representing approximately 15% of its scheduled flights during the summer, one of the largest cancellation actions among global airlines this year.

Airlines and airports have also been unable to handle increased amounts of luggage in the past few weeks, which has led to delivery delays and losses. And increased insurance claims.